Capitalism the German Way

During my morning workout today I watched "Morgenmagazin", a mutual tv programme by ARD and ZDF, Germany's mammoth public tv channels. One topic was German automaker Porsche's announcement to acquire twenty percent of Volkswagen AG.

The reporters of "Morgenmagazin" were jubilant about the transaction. They called it a "win-win" situation for Porsche as well as Volkswagen. A leading conservative politician (Christian Wulff), who was interviewed about the transaction, was equally impressed. He stressed that Porsche was loyal to Germany.

...to prevent any hostile takeover of VW that could threaten the partners' business ties.

Concerned that a European court could overturn the so-called "VW law" that helps shelter Europe's biggest carmaker from unfriendly advances, Porsche said it needed to boost its current stake of under 5 percent to protect the German car partnership.

"Our planned investment is the strategic answer to this risk," Chief Executive Wendelin Wiedeking said in a statement.

Porsche builds its Cayenne offroader with Volkswagen and also is developing fuel-saving hybrid technology with VW, which supplies content for 30 percent of Porsche's sales volume.

Porsche said in a statement it would fund the purchase of the stake -- worth around 3.3 billion euros ($4.01 billion) at current prices -- from available liquidity. A spokesman added it might increase its stake by buying VW shares on the market.

"The stake will in no case reach the level at which Porsche would have to make a public offer to take over VW," it said.

Volkswagen welcomed the move. A spokesman quoted Chief Executive Bernd Pischetsrieder as saying a stable shareholder structure was important for its long-term business prospects and would strengthen VW's working relationship with Porsche.

At the time of this posting - 1 pm Berlin time on Sept. 26 - the Porsche stock was down 9 percent, while VW's shares oscillate around last weeks closing level (against a 2.4 percent gain of the DAX, Germany's stock index). Porsche shareholders pay through their nose for this "strategic answer" to shelter VW from "unfriendly advances", meaning foreign investors trying to impose on VW anglo-saxon standards of running a business efficiently. Rather than letting shareholders participate in Porsche's large cash holdings, Porsche's management decided to tie the company to the fortunes of a German manufacturer of small and mid-sized cars with considerable sales and profit problems.

(BTW - the cooperation of Volkswagen and Porsche dates back to the days of Adolf Hitler. The Porsche family - represented by former Volkswagen CEO Ferdinand Piech, an engineer with great technical knowledge, but lacking in marketing skills - still owns a considerable share of the Porsche and the VW stock.)

Porsche's decision to increase the VW stake most likely is not a wise move from a strictly business perspective. In Germany's anti-anglo-saxon political climate the decision will be hailed by the left, however, as necessary for the good of the Vaterland.

If you are searching for the root causes of Germany's miserable job performance, the Porsche/VW deal may well serve as a typical example of "Capitalism the German Way", that eventually leads to a further deterioration of Germany's economic power.

Comments

VW is facing the same problems that Ford and GM are facing. The Japanese build superior cars, and they can do it for less. Few people buy VW products in the US now, except for a few who buy the New Beetle (made in Mexico). 30 years ago, VW was a hip brand. Now it's synonymous with poor quality and expensive. Porsche is also in a bad position. Who buys Porsche cars in the US now? No one. What the hell happened?

Volkswagen is the Bundesland Niedersachsen's "Japanese Post" i.e. the local entitlement complex. The Prime Minister of Niedersachsen (currently Christian Wulff) is the representative of the largest shareholder on the Volkswagen board. And of course Niedersachsen is Gerhard Schröders home state, the stepping stone to the chancellery from which he picked former Volkswagen personnel chief Peter Hartz as the architect of his failed welfare reform. The Porsche decision is motivated by the fact that Volkswagen is not just a carmaker, but first of all a corporate culture laboratory to try out ways to manage the cohesion of German society.

I don't quite get it.
So this means, the local government of Niedersachsen(Lower Saxony - so the state) owns 20% of Volkswagen?

Note from David: Yes, Niedersachsen owns 18.3 % of Volkswagen. According to the VW-Gesetz (VW law) - a cornerstone of Germany's cozy corporatism - , Niedersachsen has a controlling minority stake, which should deter potential hostile bidders. The VW law lately has come under criticism from the EU commission.

I don't understand what the big deal is. This is a good thing, of course. I mean, corporations exist primarily to employ people, right?

You're not naive enough to actually believe that capitalist bunk about earning profits for the shareholders, are you? Just imagine: that might mean things like automating to increase efficiency. That could lead to people losing their jobs, and forcing others to have to work harder or longer. That's the way they do it in "Uhmerikuh." You see where that kind of thinking got them. Oh, the horror!

The fact that Porsches stocks went down shows that the capitalist stock system is corrupt and values shortsighted, personal profit over "Gemeinwohl" (I don't know the enlish word for this, if there is any). However, Porsches move shows that an answer to foreign "Locusts" is possible. As always, the authors of this website don't wait long with their usual whining, mixed with envy, about that silly, stubborn Germany refusing to follow the glorious american way.

Note from David: "mixed with envy...about Germany". Hmm... can you elaborate? Where do we show envy?

As a VW owner who sees other many other VWs on the road every day, I have to say lou's opinions on VW quality & popularity aren't shared by all. It's actually good stuff & I have no complaints other than the $ amount VW dealers will rob you for servicing once the warranty runs out.
However, I think my next car will be domestic if they can figure out how to get decent gas milage. I want the new Chrysler 300m or Cadillac CTS so bad, but they both look like such a gas hogs.

What's most telling is that Loweer Saxony now is ruled by the favourite to be the next chancellor, Christian Wulff of the so called "right" (which doesn't exist here) CDU and he never has even thought about selling the shares of his state.

Porsche is widely regarded as the best-run German company right now, it used to be BMW until they bought Rover (under the current VW boss BTW) and posted huge losses (they sold most of it later). I hope for Porsche it won't ruin them.

VW is mediocre now.
It used to be a totally union-infested outfit but recovered in the nineties under Piech.

@Pamela
What do you mean with Airbus? Is it a government controlled corporation? I didn't know that.
Could you detail it a bit?
On the other hand, would such a think not happen in US (like the Porsche-VW thing)

Teutone is happy about this buy in of VW. It has been well received by both the union leaders and as well as the political leadership of most of the parties in Germany.

This should in of itself raise red flags about the wisdom of this transaction given the results of these two sets of elites.

The markets have reacted poorly. But then in reality the markets have little to say about how and what Porsche does and does not do. All the stock which has voting rights are held by the founding family. The only traded stock is prefered stock which has no voting rights.

There is great risk for Porsche in this with what seems to be little possible payoff. The downside to Porsche is greater than the upside but in this type owership arrangement with the exception of damaging the brand name normal economic business considerations do not apply.

What this very well might do is to continue the decline of VW. There now will be little outside pressure for VW to behave like a corperation but more like a state run business.

If anything this transaction reflects much of the climate in Germany today. That climate is one of realizing reforms must be undertake but lacking both the will and courage to make these nothing gets done.

"In fact, maybe more Germans will actually buy shares themselves. In other words invest in their own nation.

This would be a great way to show national support"

And an even better way to make certain a poorly run company goes belly up in the end and everyone loses their investment, their jobs, or all the tax-payers have to keep an insolvent company afloat.

You should invest in a company because it is a GOOD INVESTMENT, not to show national support, otherwise you create an environment, where necessary changes to compete in the marketplace are perceived as not necessary.

@German.Will - Christian Wulff has already said that he is not available to backstab Angela Merkel, and I think he means it. Wulff has called the EU campaign against the VW law "as useful as a hole in the head", but that was last year when Schröder was popular for taking business delegations to Ghaddafi. I don't think Wulff will shoot himself when he sees that the days of the Herbie law are numbered... but how can you expect a Prime Minister of Niedersachsen to campaign for selling the state's Volkswagen shares, when Niedersachsen's electorate a few years ago reelected Schröder for a third term on that post because he made the state buy 51% of Preussag?

@neocon
>>On the other hand, would such a think not happen in US (like the Porsche-VW thing)

neocon, please forgive. Family issues are taking priority so I cannot respond with my usual joie de vivre or however the fuck you spell it.

Go google Boeing and where that company gets its funding.

There is a website you need to read - EU Referendum.
http://www.eureferendum.blogspot.com/

Richard North. Dammit. I'm already married.

Here is a bit
-------------
humdinger of a story about corruption is enmeshing the part-French government owned Thales defence contractor, a multibillion dollar international enterprise which rejoices in the slogan "The world is safer with Thales".

"VW is certainly facing problems in the US, but the rest seem to be doing fine, especially Porsche."

Flux, I don't know what part of the world you live in, but Porsche is not exactly selling like hotcakes in the US. I am old enough to remember when Porsche cars were status symbols in the 1970s and 1980s. The Porsche name no longer has the same status in the US. The Japanese build superior 2-seat roadsters. Where does that leave Porsche?

"BTW - the cooperation of Volkswagen and Porsche dates back to the days of Adolf Hitler. "

Sorry, but that´s a really tasteless and pointless remark.

One could probably fill books with a comparison between the "German way" and the "American way" of running a business. I´m by no means an expert (I have a vague idea about the different roles of CEO and board and so on), but I don´t think that it really matters that much in practice.
Managers of today aren´t "German" anymore, but they´re used to think and operate internationally. There are uncounted examples of business leaders who have worked in both "worlds".

As for the superiority of the so-called Anglo-Saxon model: By cherry-picking the examples, one can prove anything. How about Rover, Chrysler, GM, Enron, Air Canada...

And since Lou M mentioned the great Japanese cars: I think the Japanese way is actually quite similar to the German way.

the best for a society as a whole is the controlled capitalism we have here in Germany - "Soziale Marktwirtschaft", because it balances "Eigennutz" and common welfare. Both extremes are wrong - "Gemeinnutz vor Eigennutz" (pure socialism) and "Eigennutz vor Gemeinnutz" (pure capitalism without common welfare).
Humans have always worked together and supported each other to be successful, and Soziale Marktwirtschaft continues that principle on a larger scale.

"German takeovers in locustland" never buy companies and destroy them for short-term financial profit, leaving people jobless and creating social unrest. They have a longterm strategic interest that helps both the company and the employees. We don't have anything against THAT sort of foreign investors.

@Teutone, "best for a society as a whole is the controlled capitalism we have here in Germany - "Soziale Marktwirtschaft", because it balances "Eigennutz" and common welfare. Both extremes are wrong - "Gemeinnutz vor Eigennutz" (pure socialism) and "Eigennutz vor Gemeinnutz"

Who says individuals looking after themselves and their families is an "extreme". Who says it is wrong? Are you implying that if Germans decide an idea is good for them, despite the evidence of higher unemployment and a housing crisis deriving from their "social" system, that the rest of the world should be forced to adopt it unquestioningly? We used to call that "colonialism", something Europe really is expert at, unlike "common welfare". Remember that along with food, housing and jobs are two of the most important things a successful society can provide to its citizens.

""German takeovers in locustland" never buy companies and destroy them for short-term financial profit, leaving people jobless and creating social unrest. They have a longterm strategic interest that helps both the company and the employees"

I assert that you only believe that because the biased German media tells you alarming stories about Americans, and absurdly comforting ones about their fellow German companies. Would Germany let a foreign entity buy a German company that is in good health, with excellent growth prospects and does not need restructuring just to survive? If American methods leave workers jobless, how come America has a much lower level of unemployment than Germany, not just this year but for the past decades while Germany's "social" state has expanded?

@Teutone..
do you actually BELIEVE that crap? we germans are socially just?
what about the takeover of Rover in the UK - who took them over, BMW?
and now Rover is out of business? I am sure there
are plenty of Rover workers who could take issue with what you write.
On a more personal note, I come from Detroit.
do you really believe the Daimler Chrysler merger was one filled with love and social justice? But on a positive note, even though Chrysler suffered from it, I never heard the leader of a major American political party refer to German investors as locusts or Nazis..
or I never saw the cover of a major american magazine with a Nazi boot stepping on Chrysler workers with the title 'Nazi Methods'. Stern magazine anyone (WILD WEST METHODS)?
no no no.. everything in Germany is just Friede Freude Eierkuchen..
if it wasn't for those ----------, we in Germany would be just fine.
Americans
Ossies
Ausländer
Turks
Asylbewerber.
Jews

BTW - the cooperation of Volkswagen and Porsche dates back to the days of Adolf Hitler. "

>Sorry, but that´s a really tasteless and pointless remark. <

I am not sure why that remark is either tasteless or pointless. As the statement is both true and accurate.

It is a reasonable explaination of one of the possible reasons for the current actions by Porsche. From a strict business stand point the investment by Porsche in VW makes little business sense. There is a family connection between these two corperations which dates to this time.

Thank you Porsche for making your shares cheaper for a day. I just bought Porsche shares.
I have no idea why you find this deal so shocking. Porsche is not known for flushing money down the drain like all those New Economy heroes.

Wiedeking runs a tough ship at Porsche and VW can only benefit from that. Yeah he should have bought earlier maybe, but don't we all buy too early or too late?

Btw I also hold BMW shares. Also a family run business. They don't fare too badly, do they?

Porsche's investment is a long term strategic one and makes a lot of sense. Analysts are idiots. I read their advices and do exactly the opposite.

Is it true that there are also subsidies for the car industry, for the movie industry, for farmers (ok, this is well known), etc?
That would be bad for the economy. Does anyone have more details about that?

@ Joe "What better way to protect your future and that of your nation than making investments in German companies."

Couldn't agree more: when my German employer downsized me after 20 years of service I invested my severance package (Abfindung) in the stocks of the company that canned me. Over the span of 40 months I quadrupled the return on investment. And guess what: tax free in the BRD.

Porsche is the most profitable car maker on this planet. You should look at the stock market and the developement of Porsche during the last decade.

VW would really have problems if there would be any similarities with GM or Ford. But there are no such similaritties. You just have to look at the different balance sheets the bond markets or the ratings of the different companies. Even the present downgradings for GM and Ford are far to good for these Companies in my view but we will see further downgrades in the upcomming month for GM and perhabs also Ford. Perhabs you can compare Fiat with GM or Ford.

To the real topic.

I think it is a good deal for Porsche.
-Porsche secures its longterm strategic partner and supplier.

- it s a good investment for Porsche it is nearly tax free and Porsche has to invest the huge cash positions somewhere. VW really is a very good buy at the moment if you look at the cost cutting programms. The performance of VW stocks in the last months show that.

- It is just normal that the Porsche stocks went down after this news.
Looking at the developement of Porsche stocks in the last months. The markets believed that Porsche would use this money to increase the dividend or to buy back stocks.

"Porsche's decision to increase the VW stake most likely is not a wise move from a strictly business perspective. In Germany's anti-anglo-saxon political climate the decision will be hailed by the left, however, as necessary for the good of the Vaterland.
If you are searching for the root causes of Germany's miserable job performance, the Porsche/VW deal may well serve as a typical example of "Capitalism the German Way", that eventually leads to a further deterioration of Germany's economic power"

This is only a biased comment without any facts. But feel free to post your economic analyse of this deal based on numbers. I would welcome that.

If anybody suffered from the Daimler Chrysler deal you should ask the shareholder of Daimler Benz that had and have to pay for this nightmare adventure called Chrysler.
It needed billions of Euros and the best people from Daimler to save this sinking ship.
Now Chrysler is more or less back but Daimler suffers from quality problems etc.
I lost more than 40 % with my daimler shares because of the big dream of this big manager called Schremp.
You and especially every remaining Chrysler worker can thank good that Schremp was stupid enough to invest in an american carmaker at the present situation.

Unlike governments corporations cannot continue to lose money or borrow money to continue operations, which result in losses. Corporations are forced to make difficult decisions. For example:

Zetsche eliminated 40,000 jobs from 2000 to 2004 to help Chrysler return to profit in the U.S. He will take over at Stuttgart, Germany-based DaimlerChrysler when CEO Juergen Schrempp retires. In the first six months of this year, Chrysler had an operating profit of $963 million, and Mercedes reported a $1.1 billion loss.

Daimler is looking to cut jobs in Germany to control costs and reduce its losses.

VW has just changed the cost structure for one of its new models. These changes were wage reductions and work rules. Without a change to the cost structure VW would end up with more losses from this model.

I have pointed out reforms will take place in Germany even if Germans do not want them too. The market place will cause these reforms. We are witnessing this in corporations all over Germany. It would be nice if the political class would add leadership to this restructuring but at this time there is a lack of leadership and will to do so.

@Koeln..
oh so when German investors come over to the US and cut jobs, they are 'saving a sinking ship..'
but when American investors do the same, they are locusts..
hmmmm.. doppelmoral?
and what about Rover?
as joe said, companies are in a business to make a profit.
Don't try to pull this - we Germans are socially just - shit on me..

"Porsche's decision to increase the VW stake most likely is not a wise move from a strictly business perspective."
....

I wouldnt be so sure about that. Porsche is just playing safe.
Not only does it get 30% of its parts from VW... it uses the VW chain of "repair shops" and a lot of research is done cooperatively or by VW.

In case VW is taken over by some other company it could be a very hard blow to porsche provided the new owner would not share the old companies cooperative stance.

Porsche actually is a quite successful company. That doesnt speak for foolish decisions either.
And given the fact that it can afford to get 20% of a company the size of VW is not only evidence to its strength and VWs weak standing but also one for the potential of that deal.

The remark about "Nazi Germany" is in my view obsolete. And the idea :"In Germany's anti-anglo-saxon political climate the decision will be hailed by the left, however, as necessary for the good of the Vaterland." is in so far a bit strange as the "left" wouldnt use the term "Vaterland" ;)
They would rather hail it for its supposed protection from "Sozialabbau" caused by supposedly "evil" (american) buyers.

Not really any better or more true than the other statement but different nonetheless.

"Who says individuals looking after themselves and their families is an "extreme". Who says it is wrong? Are you implying that if Germans decide an idea is good for them, despite the evidence of higher unemployment and a housing crisis deriving from their "social" system, that the rest of the world should be forced to adopt it unquestioningly?"

What do you mean with "housing crisis"?
No one should adopt something unquestioningly, I didn't say that. But for me and for most Europeans, the Soziale Marktwirtschaft is currently the superior model, at least for Europe and certainly for Germany. Probably it wouldn't work in the US, because people think different there. I think each region of the world or country has it's own psychology and history and therefore must find it's own way. So I'm answering to the shortsighted and wrong opinion (which is, however, understandable from an american point of view) propagated in this blog that Germany should adopt the neoliberal anglo-american model, because it just would not work here.

"Would Germany let a foreign entity buy a German company that is in good health, with excellent growth prospects and does not need restructuring just to survive?"

@teutone..
I would argue the USA also has a SozialMarktwirtschaft..
just not as extensive as yours.. more marktwirtschaft, weniger sozial..
but a sozial marktwirtschaft nevertheless.

ever hear of Social Security? Unemployment benefits? Welfare? Medicaid?
Medicare?
Affirmative action? Student loans/grants?
these are all part of the safety net in the USA. the cowboy capitalist model is a myth.. read the book Amerikanische Verhältnisse...

@Teutone -the best for a society as a whole is the controlled capitalism we have here in Germany - "Soziale Marktwirtschaft", because it balances "Eigennutz" and common welfare.

Consider -

The SPD is to Germany as the Liberals to Canada: the party to manage national decline. The long-term success of each has depended on turning "voters" gradually into "clients". >From the humblest welfare recipients, up to big businessmen whose fortunes depend on sweetheart regulatory arrangements, each party pitches itself, as crassly as necessary, to the beneficiaries of state largesse. Their supporters therefore become quite inured to massive corruption, and revelations of ineptitude -- and remain so, as long as they are guaranteed preferred access to the government trough.

The intention of such governments is not to run the economy into the ground, nor even to destroy the moral order through experiments in social engineering. That is simply the natural consequence of their way of doing business. A Social Democrat or Liberal government will do whatever appears immediately necessary to defend its tax base; and since full socialism has been repeatedly shown to lead directly to economic collapse, a kind of "guided capitalism" is favoured. The long-term economic decline becomes a by-product of a political outlook that mechanically ranks national interests below party interests.

Almost every west European country, Canada, and Japan, are in the same rut, from the same basic cause.

Humans have always worked together and supported each other to be successful, and Soziale Marktwirtschaft continues that principle on a larger scale.

Yes, we have, and it's precisely the 'social' qualities (this working together to help each other) that have elevated us to the position that we're in, as you say. What makes this new arrangement different is that it is mandated, and the effects of this none-too-subtle change are significant. It is this mandated aspect which turns the nature of social behavior into social poison.

Where once we worked together out of self-interest ("If I want help when I need it, I must help when I can"), that's no longer the case ("I will have help when I need it, whether I help anyone or not"). This insures that there will be less total work put into society, which by effect requires that there will be less output from society. Before we had any such things as social security, welfare, etc., the only mechanisms for our economic protection were our families and communities (friends, churches, etc.). We placed much more value in these things when they were not so optional, and I think we are worse for the change.

@Querdenker -Btw I also hold BMW shares. Also a family run business. They don't fare too badly, do they?

I don't know how their stock is doing, or even their sales, but they are another company whose products do not today have the status here (U.S.) that they did 20 years ago. A BMW in your driveway used to be something to envy, now it would be more of a curiosity.

Actually the idea that Porsche is some how protecting VW from a hostile takeover is just smoke and frankly is meant for consumption by the masses. This plays well with the Germans but does not play well with investors.

The very nature of the complexity of automobile manufacturing is such that hostile takeovers do not occur.

No one can name a hostile takeover in this sector because there have not been any in the last 20 years.

So the rationalization given is false. What it does do however is to break the stated principles of Porsche about how it manages its own cash flow and capital. Prior to this Porsche conserved capital to carry it through any down periods. This investment does not support that principle.

As for Porsche investing it cash, a better investment would have been the buy back of its own shares. The return would be greater than any return it will get from VW.

"What do you mean with Airbus? Is it a government controlled corporation? I didn't know that.
Could you detail it a bit?"

[Full disclosure: I work for Boeing. However, I don't work in the commercial airplanes division. And I am not speaking on behalf of Boeing or anyone involved with it, other than myself.]

Airbus, as originally formed in the 1970s, was 80% owned by the French government, and 20% owned by the British government. About fifteen years ago, they created a parent company called EADS, and transferred Airbus' ownership to it. EADS is a publicly traded company. However, as a condition of the transfer, the French government retained a substantial share, about 40% I think. Also, the French government holds a "super share" of EADS that gives it veto power over all board decisions, and effectively guarantees it control of the company no matter how many shares are held by other entities.

EADS obtained substantial subsidies for the launch of the A380 superjet. Most of this came in the form of loans that were not only granted at below-market interest rates, but don't have to be repaid until and unless the A380 becomes "profitable". The terms leave the definition of "profitable" more or less up to EADS; thus, EADS can more or less decide for itself when, or ever, it feels like paying the loans back. It was done this way to work it in under the terms of a treaty that the EU signed with the U.S. in 1992 that allowed Airbus subsidies to continue for a limited period during the transition to EADS. It was the U.S. government's contention that the treaty had expired before A380 development began, and that the A380 should not have been covered. However, Washington eventually decided not to press the issue too much in this case. (This was partly because of some market studies that Boeing had which stated that there wasn't a sufficient market for an A380-sized aircraft. This remains to be seen, however.)

Since deciding not to go head-to-head against the A380, Boeing has been pursuing "mid-large" aircraft (250-400 passengers) with the capability for very long range, to make it possible for airlines to do more point-to-point flying and less hub-and-feeder routing. Boeing thinks this is where the market is. Airbus disagrees. However, when Boeing introduced the new 787 last year, Airbus suddenly did an about-face. They announced a new model, the A350, to compete head-to-head against the 787. Airbus got caught flat-footed by the announcement of the 787, which will include a number of advanced technologies not used in airliners before, so they immediately found themselves in a catch-up position. They immediately fell back on their old habits: they went to the European governments for a handout. Last numbers I saw was that the development of the A350 was expected to run about 4 billion euros, and that EADS expects 75% of that to be subsidized. This is so flagarantly in violation of the WTO treaties and the 1992 bilaterial treaty that the U.S. immediately protested. The EU has more or less told Washington to take a hike, hence the pending WTO action.

It is EADS' contention that Boeing receives "indirect" subsidies in the form of military contracts, and benefits from aeronautical research performed by government agencies such as NASA. However, EADS receives military contracts too. In fact, it is currently rolling in euros from the A400M military transport, a boondoggle if ever there was one. The German government has been a significant player in this project, which is to essentially duplicate the capabilities of the existing, off-the-shelf Lockheed-Martin C130-J. EADS has benefitted from both direct subsidies and guaranteed orders on the A400M. Not surprisingly, the program is years behind schedule and mired in politics over which country gets which percentage of jobs. As for the NASA research, that is all in the public domain and Airbus benefits from it just as much as Boeing or anyone else does; all anyone has to do is read the reports.

The WTO action is admittedly a risky one for the U.S., not only because of the political ramifications, but also because, based on recent history, we have no confidence in the WTO's ability to abide by the terms of the treaty in a case that involves the U.S. However, from a domestic political standpoint, something has to be done. The direct possible ramifications if EADS continues to pursue A350 subsidies might include the A350 being banned from U.S. airspace. That would no doubt lead to European retaliation against Boeing. I'm not sure what happens after that.

@Teutone"Probably it wouldn't work in the US, because people think different there"

You're right about that - after all, given the unemployment situation, it clearly does not work here in Germany.

"I'm answering to the shortsighted and wrong opinion ... propagated in this blog that Germany should adopt the neoliberal anglo-american model, because it just would not work here."

No, you might end up with higher levels of employment and a happier citizenry. Then the left would not have as large a base of malcontents from which to draw. (ed. I just read Doug's reply - he said it with more patience than I).

If it would not work in Europe, it would not be because of anything different about Europeans, in my opinion, but because of special interests whose substantial power would diminish under market capitalism, where the consumer gets a vote everytime they buy or don't buy a product or service. I am not only thinking of trades union, where those who are organized win a disproportionate share over the rest. I fail to see anything particularly "social" in such arrangements; it seems to be just a particular expression of power.

@joe, "So the rationalization given is false. What it does do however is to break the stated principles of Porsche about how it manages its own cash flow and capital. Prior to this Porsche conserved capital to carry it through any down periods. This investment does not support that principle.

As for Porsche investing it cash, a better investment would have been the buy back of its own shares. The return would be greater than any return it will get from VW"

You nailed it, Joe. When any company is rolling in cash, the default course of action is to return it to the shareholders when it cannot be invested internally and not, as @koeln asserted, invest the cash anywhere.

To give you something to worry about: I work in mergers and aquisitions and spend my life chasing down german companies for "locusts" in takeovers. Last month we busted up a nice little mechanical corporation, union infested, in the south of your beautiful country. this month, i have got the "betriebsrat" calling me whining and asking me to preserve their privileges. that's what i call a fun day of work. your old economy is so rotten in part that it stinks.

VW ? Let the EU crack up the protective law and we will be there. BMW ? Well, a worthy opponent makes the fight all the more interesting.

"You're right about that - after all, given the unemployment situation, it clearly does not work here in Germany."

You surely know that we are pumping about 100 billion Eur each year into former DDR? And this is because East Germanys economy broke down after DDR-Mark and D-Mark were exchanged 1:1, which left the East German economy without chance in the competition? Perhaps this might be the biggest cause of the problem? To blame Soziale Marktwirtschaft for Germanys unemployment problem sounds nice, but is wrong nevertheless.

"Tief atmen. Xenophobia showing."

Well, I understand that you have to resort to polemics when you are running out of arguments. You asked if foreign entities are buying sound companies and destroying them for short term profit, and I said yes, because it's obvious.

@Teutone, "You surely know that we are pumping about 100 billion Eur each year into former DDR?"

If the USA did this to say, for argument's sake, Louisiana and it resulted in a dramatic increase in employment, would you dismiss the improvement as due merely to deficit spending? You see, normally we associate such profligate spending with a deficit on the one hand and higher employment numbers on the other. Germany seems to be weighted down on both! Unless the unemployment is due to something else...

"Well, I understand that you have to resort to polemics when you are running out of arguments. You asked if foreign entities are buying sound companies and destroying them for short term profit, and I said yes, because it's obvious."

Well, could you give some examples of sound companies destroyed for short term profit, given that "it's obvious". We would like to share your outrage.